Good Morning. Bonjour. The Gold
Anti-Trust Action Committee is holding this conference to
ask a simple question with a far from simple answer: Where does
GATA go from here?

Having just arrived in Dawson City by motorcycle
from Boston through Montreal and across Canada, I'm tempted to
suggest "south," which not incidentally is the long-term
direction of the U.S. dollar and the rest of the world's paper
currencies.

My long ride to the epicenter of the Klondike
gold rush has given me a new appreciation of the hardships encountered
by the early prospectors who opened Canada's north largely by
canoe and portage in their lonely searches for free gold. See
Arnold Hoffman, Free Gold: The Story of Canadian Mining
(McGraw-Hill, 1982; originally published 1947). About the only
certainties in their lives were that failure to get out before
the winter freeze meant death and that gold, if they found it,
was real money and not credit. Our daily lives are far more comfortable,
but few of us can say or agree on what -- if anything -- is now
money but not credit.

For over six years, GATA has labored online
and off to expose the manipulation of gold prices by a cabal
of powerful governments, central banks and bullion banks. The
evidence it has assembled leaves little doubt that for over a
decade the allegedly "free" post-Bretton Woods gold
market has been rigged, largely through the use of derivatives
supported by central bank lending, with the goal of making paper
currencies -- especially the U.S. dollar -- look stronger than
they are and keeping worldwide interest rates lower than they
should be.

In postings at our website, The Golden
Sextant, Bob Landis and I have reviewed much of this evidence,
especially as it relates to gold lending in one form or another
by central banks and to gold derivatives on the books of the
bullion banks. Indeed, my most recent commentary, Gold
Derivatives: Skewing the World (6/15/2005), addressed this
very subject based on the most recent data from the Bank for
International Settlements.

Today, as suggested in the title of my talk,
I propose to offer some new ideas on how to free the gold market
from the iron grip of the banks.

Pimps and Wimps. Among
government officials, bankers and economists, gold has become
a four-letter word often used with "bug" to convey
the idea that advocates of sound money are a pest, not to mention
a mortal threat to the modern democratic (small "d")
welfare state, which cannot function on permanent natural money
of gold or silver.

As Alan Greenspan himself once observed: "[T]he
gold standard in any form ... is incompatible with chronic deficit
spending -- the hallmark of the welfare state." A. Greenspan,
Gold
and Economic Freedom (1966, reprinted in A. Rand, Capitalism:
The Unknown Ideal. You can't forever buy people's votes with
their children's money except on a regime of unlimited government-issued
legal tender paper.

Bankers -- especially if they are politically
well-connected -- welcome this type of monetary regime because
the risks of fractional reserve banking and major failures due
to poor banking practices are more easily mitigated by the central
bank in its role as lender of last resort. No profit-minded banker
will go for gold when it's much easier and more lucrative to
get in bed with the Fed.

Like Lord Keynes, most modern economists consider
the classical gold standard a "barbarous relic." A
couple of years after President Nixon closed the gold window
in 1971, one economist put the problem like this (Janos Fekete,
president of the Hungarian National Bank, as quoted by M. Mayer,
The Fate of the Dollar (Truman Talley, 1980), p. 61):

There are about three hundred economists in the world who
are against gold, and they think that gold is a barbarous relic
-- and they might be right. Unfortunately, there are three billion
inhabitants of the world who believe in gold. Now the problem
is how can we three hundred convince the other three billion
of the correctness of our ideas. I think we could if we had time.
But we need a lot of time.

Since the days of the New Deal, American colleges
and universities have spread the anti-gold message, laying much
of the blame for the Great Depression on the discipline of the
gold standard itself. American law schools long ago eliminated
any serious discussion of the monetary principles of the Constitution.
Conservative legal scholars who focus on the original intent
of its framers pay no intention to their shared monetary views,
which were shaped in large measure by the collapse of the Continental
currency.

Surprisingly, among the earliest converts
to the notion that gold should no longer be regarded as money
was the gold mining industry itself. Largely decimated by the
flawed Bretton Woods system, the industry has through the World
Gold Council run an expensive campaign to promote the use of
gold as jewelry while distancing itself from any advocacy of
gold as money. Admittedly, gold producers need mining permits
from governments and financing from banks, so their conversion
may not have been wholly voluntary. But whatever the reason,
most of these golden geese behave more like ostriches.

Since its inception, GATA has approached a
large number of government officials, bankers, economists (both
mainstream and free market) and senior managers in the gold industry
for assistance in fighting price fixing in the gold market. With
distressingly few exceptions, these worthies have proven pimps
for political power or wimps in fear of it. To secure free markets
in the monetary metals and to reestablish sound money of gold
or silver, GATA must look elsewhere for help.

Black Gold.
Ferdinand Lips, a stalwart friend of GATA and author of Gold
Wars: The Battle Against Sound Money As Seen from a Swiss Perspective
(FAME, 2001), recently gave a lecture in Saudi Arabia to the
Gulf Research Council on the topic: "Oil for gold or oil
for paper?" Noting that the world is "in the midst
of a global currency devaluation scenario," he observed
that "while oil is the king of commodities, gold is the
king of money," and he suggested that oil producers are
not getting real value by pegging its price to the dollar. See
P.V. Vivekanand, GCC
Urged to Peg its Currency to Gold, www.arabnews.com
(May 29, 2005) (alternate
link).

While oil has lost none of its importance
in the real world, the energy sector as a percent of the S&P
500 declined from around 25% in 1980 to just over 7% at the beginning
of this year. Over the same period, the financial services sector
grew from just over 5% to almost 23%. See S&P
500 Sector Weightings at www.Barra.com.

Adam Hamilton, proprietor of ZealLLC
and a regular contributor to The
Metropole Cafe, has written extensively on the gold/oil ratio.
See, e.g., A. Hamilton, Gold/Oil
Ratio Extremes 2 (April 1, 2005). At my request and for this
conference, Adam has provided two sets of charts updated through
June 30, 2005.

The first set compares oil and gold prices
-- nominal and real -- against each other, and shows the remarkably
close correlation of their long-term price trends over the past
40 years.

Within these closely correlated in long-term
trends, however, there have been wide swings in relative prices.
These are captured in the gold/oil ratio, which is shown in the
second set of charts, first as the number of barrels of oil equating
in value to one ounce of gold, and second as the cost in ounces
of gold of 100 barrels of oil. At the end of June, gold had never
been cheaper relative to oil or oil more expensive relative to
gold.

As these charts show, oil prices have far
out paced gold over the past decade. This phenomenon is wholly
consistent with the official suppression of gold prices during
the same period. And it is underscored by the enormous differences
in the market capitalizations of the eight largest gold companies
versus the eight largest integrated oils covered by Value
Line.

Coin of the Realm. Swings
in the gold/oil ratio may not be of much use to short-term traders,
but they provide opportunities for patient, long-term investors,
especially if they are well-financed and can afford to wait for
the principle of reversion to the mean to assert itself. No one
is better positioned nor should have greater incentive to play
the gold/oil ratio than the oil companies themselves.

Indeed, by integrating the gold/oil ratio
into their financial strategies, oil producers could achieve
indirectly -- and possibly more effectively -- many of the benefits
of pricing oil in gold, but without incurring some of the risks
and much of the political fallout that any move away from pricing
in U.S. dollars would entail.

The following table provides some background
figures on the debt and share repurchase programs of the eight
major integrated international oil companies listed in the prior
table. The first five carry Value Line's highest rating
(A++) for financial strength.

These figures suggest several questions applicable
not only to these large integrated oil companies but also to
smaller oil producers with significant cash resources:

Does it make financial sense for oil producers
to engage in large share repurchases when oil is historically
expensive relative to gold?

Following the same policy as the International
Monetary Fund, could oil producers add further strength to their
balance sheets by holding gold reserves, particularly if purchased
at favorable prices relative to oil?

If oil producers held gold reserves, could
they employ them to lower the effective rate of interest on their
long-term debt by issuing gold-backed or gold-redeemable securities?

Time does not permit an extensive discussion
of these questions. Arguments can be made on both sides of each.
But if only a handful of oil producers, or just one of the large
integrated oil companies, began to invest seriously in gold bullion
or the gold mining industry, it would be a watershed event.

Almost overnight the gold market would cease
to be the almost exclusive preserve of the central banks and
their allies in the bullion banks. What is more, the first oil
producers to move into the gold or gold share markets would stand
to reap the greatest rewards since their own purchases would
almost certainly propel prices higher in these relatively small
markets.

Pride of Nations.
Oil, of course, involves politics as much as it does economics
and finance. Not only is oil essential to the functioning of
modern industrial economies, but also no other commodity arouses
as strong feelings of nationalism, especially in countries having
significant reserves. Like gold, oil is where you find it, making
its producers citizens of the world who must be sensitive to
the demands and aspirations of the nations in which they operate.

Mayer Amschel Rothschild (1744-1812), founder
of the banking dynasty that bears his name and a contemporary
of the framers of the American Constitution, famously observed:
"Give me control of a nation's money and I care not who
makes her laws." This statement expresses the essence of
the political argument for money of gold or silver, and for insulating
money as much as possible from manipulation by the banks.

Particularly in the post-Bretton Woods world,
the practice of pricing oil in U.S. dollars gives every appearance
of having been "Made in America" by the U.S. Treasury
and Federal Reserve for the benefit of Americans. Without question
it provides important support for the dollar. Indeed, some argue
that Saddam signed his own death warrant, or at least that of
his regime, by changing the pricing of Iraq's oil from dollars
to euros.

But pricing oil in euros carries many of the
same dangers as pricing it in dollars. The results of the recent
referendums in France and the Netherlands on closer European
political integration, not to mention polls in Germany suggesting
wide support for the return of the Deutschemark, have rekindled
doubts about the long-term viability of the euro itself. Some
have even suggested the possibility that France and Germany might
create a "new euro" in combination with the oil-rich
Russians, thus making the new unit an important petrocurrency
as well as endowing it with the historic German commitment to
sound money and the French affinity for gold.

Oil, money and nationalism are an explosive
combination, and one that is likely to play a growing role in
world affairs over the coming years. It is a future for which
the oil companies should prepare, and one for which they will
be better positioned if they have already started to edge away
from the dollar or the euro toward gold.